Madoff Victims' Battle to Recover Funds Yields New Jersey McMansion

Thought 2010 would bring a respite from the joys of Madoff madness? Think again. January was silent on the Madoff front, but February so far has been a veritable Bernie bonanza as the courts and Irving Picard, trustee for the case, continue to search for assets and try to determine who deserves compensation.Judge Burton Lifland spent four hours on Tuesday listening to arguments about how much compensation Madoff's victims may claim. He did not render a decision. Picard had already set up a "net winner/net loser" categorization to help determine which victims could get compensation. ("Net winners" recieved more money from Madoff's firm than they put in; "net losers" put in more than they got out.) Picard has identified 2,568 net winners and 2,335 net losers.

On compensation, the net losers will be the big winners, as Picard and the Securities and Exchange Commission have determined. But in today's case, the net winners' lawyers challenged this method, arguing that the final determination on repayment should be based on how much money was listed on account statements Madoff issued. That would make many net winners eligible for some of the recovered monies. But given that $1.5 billion has been recovered so far, and more than $20 billion remains unaccounted for, compensating net winners would leave some net losers out in the cold.

Still, the search for assets continues, and has extended to Madoff's associates. The latest Mad Man on the hook is Frank DiPascali, Jr., who agreed on Monday to forfeit his house and property to help compensate victims.

DiPascali, 53, was knee-deep in the conspiracy. He grew up next door to Madoff's personal secretary and recruited his brother-in-law to work for the firm. He started working for Madoff in 1975, right out of college; by 1986, he had become the firm's director of options trading. Ten years later, Madoff promoted him to C.F.O. and, according to DiPascali, he became one of the directors of Madoff's London-based securities firm. He dealt directly with many of its big-ticket customers, often posing as a trader.

In August, DiPascali pleaded guilty to a host of felonies: conspiracy, securities fraud, mail fraud, wire fraud, perjury, income tax evasion, and international money laundering. Facing a maximum of 125 years, he agreed to cooperate with prosecutors, promising to "tell all and name names." His sentencing is set for May.

DiPascali is being held without bail. But his wife, who occupies the couple's home in Bridgewater, N.J., has agreed to leave the property so it can be sold to help reimburse Madoff's victims. (The house is valued at $1.38 million: a drop in the bucket.) The couple's saleable personal effects will also go on the block. What it lacks in the kitsch value of a Madoff boogie board or Mets jacket, DiPascali's yacht, Yamaha motorcycle, snowblower, ATVs, and gym equipment should fetch a pretty penny.

The DiPascale seizure is only the latest step a long, increasingly complicated attempt to reimburse Madoff's victims. The fraud ran for at least 20 years, costing investors an estimated $64 billion. In the months after Madoff confessed, authorities moved to seize his personal property, which had an estimated value of $826 million. Since then, Picard extended the search to include Madoff's employees and associates, as well as "net winners," some of whom, he argued, were complicit in the scheme.

In the process, it began to seem like Madoff's scam, for which he took sole credit, may have actually extended over a much wider group. In the 90 days before his arrest, Madoff's family, employees, and friends withdrew $735 million from the firm, suggesting that he'd tipped them off about his impending surrender to the authorities. DiPascali was among those who made an early withdrawal, according to The Daily Beast. Other potential sources for recovery include Madoff investors whom Picard said "know or should have known" that the investment business was a scam.

It may be months or years before the victims receive even a portion of their money. For now, a once clear-cut case has become a confusing morass in which the victims and the villains are often the same people.